First Sale Doctrine: Valid for Promo CDs

Over the years I've managed to pick up my fair share of promo CD's - all with the same minuscule notice printed on the back of the case that stated "This compact disc is the property of the applicable record label and is being provided for promotional use only. Resale is unlawful and may be punishable under federal and state laws." While it never crossed my mind to sell these discs on eBay or by any other means, other people were doing just that. In fact, notably one person, Troy August was making a living by reselling promo CDs online.

The case, which closed a few days ago, originally dates back to 2007 when Troy Augusto was sued by Universal Music Group (UMG) for offering promo CD's for sale on eBay. UMG claimed that it had merely licensed the CDs for Augusto. The label insisted that it had never officially transferred ownership, and therefore Augusto did not "own" the CDs. Augusto on the other hand, had not received these CD's directly from record labels but rather had purchased them from used music stores. He claimed he owned the CDs and under the First Sale Doctrine was entitled to resell them. The First Sale Doctrine restricts a copyright owner from restricting further sales or uses of a work once title has passed. In other words, buyers of CDs (and books and DVDs for that matter), can do with the item as they please once they have purchased it. This includes lending it to a friend, selling it, or even destroying it. Note: It doesn't include making unauthorized copies of the material. In 2008, a U.S. District Court in Los Angeles sided with August, and after UMG appealed the decision as expected, the Ninth Circuit Court of Appeals upheld the lower courts decision last week.

The U.S. District Court in Los Angeles had declared in 2008 that simply because UMG claimed to retain the ownership of the CD didn't mean it virtually did. A federal judge ruled that promo CDs were gifts under federal law, and that the terms in which the promo CDs were given out in were consistent with ownership and not a license. In a license, the receiver has to agree to certain terms and restrictions, which in dealing with promo CDs was not the case. Last week the appeals court took it further, saying that UMG did not maintain control of the CDs once they mailed them out. UMG did not require recipients to agree to the "conditions" it sought to impose with its "not-for-sale" label, and they didn't require the return of the CDs if the recipient did not consent. Unlike software that forces you to agree to a certain amount of terms and conditions before using them, CDs have no such thing. UMG couldn't claim they were entering into a license agreement with the people who received their promo CDs.

Now Troy August, and others like him can continue to resell CD's on eBay and through other mediums. While certainly a victory for the end consumer - how does the music industry profit? Simple --- it doesn't.

For those of you who enjoy all the legal language, much like myself, you can read the entire opinion here.

References:
EFF Wins Landmark Ruling Freeing Promo CDs for Resale
Appeals Court Kills Universal’s Lawsuit Over Re-Selling Promo CDs
Court Tells Universal We Can Resell Our Promo CDs
Appeals court upholds first sale doctrine for promo CDs

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